Law firms must modernise or lose out as a major power shift is taking place in favour of the in-house client, a new report from Evershed's has warned.

The report, which canvassed the opinions of 130 general counsel and 80 law firm partners around the world, reveals that eight out of ten (78 per cent) believe that the recession will have a lasting impact on the profession, and that value and efficiency are now the non-negotiable attributes a client looks for in a legal partner.

The report, Law firm of the 21st century – The clients’ revolution’, commissioned by Eversheds, also reveals that the recession has had a major impact on how ‘magic circle’ law firms are viewed, with just over half (51 per cent) of clients and 46 per cent of partners citing the term as defunct.

When asked if this revision, to the traditional law firm hierarchy would be a welcome development for the market, an overwhelming 94 per cent of clients and 81 per cent of partners agreed.

While the recession has proved to be a key catalyst for this change, the report also highlights several other factors that have contributed.

The primary factor identified by over a third (37 per cent) of all respondents was globalisation, particularly the move to the East, with many international law firm leaders, as with other business sectors, considering moving their headquarters from the West to the East.

An additional driver for change is the increasing status and professionalism of the in-house lawyer (35 per cent). Three-quarters (74 per cent) of general counsel said they now occupied a far more senior commercial advisory role in their companies compared to before the recession, with 55 per cent assuming more responsibility for corporate governance.

Technology has also been a factor for change – over half of clients (58 per cent) had used technology to deliver legal services more efficiently.

The Legal Services Act in England and Wales was seen as having the least impact, with only 8 per cent believing it would have a transformative impact.

Commenting on the findings, Bryan Hughes, chief executive at Eversheds, said: “When we conducted our first report into the legal sector – The 21st Century Law Firm – two years ago, we found that many law firm partners were resistant to change, despite their clients asking for it.

“For example, two years ago, only 22 per cent of clients and 48 per cent of partners saw value billing as a trend for the future. Now, 86 per cent of clients and 88 per cent of partners say they often or sometimes use value billing.

“As well as globalisation and the increased use of technology to deliver efficiency, the key change is the shift in power to the client, which is largely due to in-house counsel taking a more important commercial role within their companies.

“This will prove to be a real shake down for the legal sector and its workings, and law firms will need to really to prove their worth as in house teams expand their expertise.”

The report also tracks the demise of the hourly rate, which is now seen as just one tool among many.

While many law firm partners are adapting to change, particularly in the area of alternative billing structures and added-value offerings – 63 per cent of clients reported seeing better value for money since the recession started through add-ons such as free-of-charge secondees – many are still not delivering what their clients want.

Two-thirds of general counsel have demanded lower fee rates from their external lawyers, and 47 per cent of partners recognise that this is their clients’ number one priority. However, only 25 per cent of partners are actually delivering reduced rates.

Mr Hughes added: “Law firms need to demonstrate where they can add real value to a client’s in house team – 87 per cent of clients now say that value-added services such as secondees or free access to knowledge management resources are a crucial factor in their decision to instruct external law firms.

“The change that was predicted to take place over the next 10 years is here now, and it will be those firms who respond to the trends identified in the report who will see the real benefits.”

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After many years paying lawyers,I became one in 2005 Just in time for the largest upheaval in the law since records began. Brilliant. Exiting times ahead.

Disclaimer. The thoughts, ideas and comments on this Blawg ("Blawg - a legal Blog) are my own and not to be confused (unless otherwise stated) with anyone else and certainly not of anyone in the Firm where I used to work and they are not the views of the firm where I used to work.